Don't Overpay: The 1099-DA Cost Basis Crisis | Crypto Tax Season's Hidden Pitfalls

A CPA specializing in crypto tax has issued an urgent warning about the 1099-DA form, which is new for many taxpayers this filing season. With reports of missing or incorrect cost basis information, unsuspecting people may face hefty overtaxation.

What is the 1099-DA?

The 1099-DA is an informational tax form released by U.S. digital asset brokers to report taxable digital asset disposals. It does not indicate tax owed or substitute existing personal reporting obligations on Form 8949.

Timing and Rollout

Effective for the 2025 tax year, this form will confuse many, according to expert sources. It’s set for a multi-year rollout, with cost basis reporting starting in 2026. The IRS requires brokers to report only gross proceeds for now, leading to several potential issues for filers who might rely on these gross figures alone.

The Cost Basis Trap

"The missing cost basis issue is exactly what’s tripping people up this season," a commenter noted on a forum.

Many taxpayers are likely to see a $0 or "unknown" basis on their copies. This means that, unless they correct their basis calculations, the IRS may assume that 100% of the proceeds constitute taxable gain. Thus, individuals risk paying taxes on incomes they never realized, leading to costly overstatements on their returns.

Solutions: Reporting Your Own Cost Basis

Taxpayers can avoid this trap by taking matters into their own hands. According to expert commentary, two methods exist:

• Manually reconstructing trades and filling out Form 8949.

• Leveraging crypto tax software like Summ to aggregate wallet data, ensuring accurate basis reporting.

Comment Highlights

• "Thanks for the detailed explanation," one user remarked, alluding to the need for clarity this tax season.

• "Can I report my own cost basis?" asked another, with the answer being an emphatic yes under IRS guidelines.

Important Deadlines

The 1099-DA forms are due to taxpayers by February 17, 2026. However, sources expect potential delays, emphasizing the need for vigilance as this season unfolds.

Key Takeaways

• 🚨 1099-DA is informational, not a completed tax form.

• ⚠️ Costs reported may be faulty or missing: don’t blindly trust it.

• ✅ Taxpayers have a right to report their own cost basis.

Curiously, the introduction of the 1099-DA appears to enhance IRS visibility on crypto transactions. However, if mishandled, it can create significant risks for taxpayers who mistakenly submit incorrect information.

For more resources on filing crypto taxes and understanding complex forms, consider visiting IRS.gov. The time to act is now to ensure you don’t get stuck with unnecessary tax liabilities!

What Lies Ahead for Taxpayers

Experts anticipate that as 2026 unfolds, confusion around the 1099-DA will likely lead to an uptick in taxpayer audits, with probabilities ranging from 60% to 70%. Many individuals may scramble to correct their tax filings, risking mistakes that could draw IRS scrutiny. Taxpayers who do not actively report accurate cost basis stand to face higher-than-expected tax burdens, with many possibly unaware until they receive notices of adjustment. Stress is expected to mount as deadlines draw closer, creating a need for proactive engagement with tax professionals or reliable crypto tax software. Additionally, a wave of public sentiment may emerge demanding clearer guidelines from the IRS to avoid similar issues in the future.

A Reflection from the Past

This situation bears resemblance to the introduction of the 1099 forms for freelance work in the early 2000s. Back then, many freelancers found themselves blindsided by inadequate documentation and a lack of clarity in reporting requirements. Just like today’s crypto taxpayers, they faced a steep learning curve that led to financial headaches. The uncertainty produced a wave of first-time audits and adjustments, serving as a crucial lesson on the importance of maintaining precise records and understanding tax obligations. This historical echo highlights the need for vigilance and proactive preparation in the face of evolving tax landscapes.